Research

Organizing Global Supply Chains: Input-Output Linkages and Vertical Integration with Claudia Steinwender (LMU)and Giuseppe Berlingieri (ESSEC) Journal of the European Economic Association, Vol. 19, Issue 3, June 2021.

• In the media: VoxEU
• Abstract: This paper provides novel empirical evidence of the effects of a plausibly exogenous change in relative factor prices on United States manufacturing production and trade. The shale gas revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world reflecting differences in endowment of difficult-to-trade natural gas. Guided by economic theory, empirical tests on output, factor reallocation and international trade are conducted. Results show that U.S. manufacturing exports have grown by about 10 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.

On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution with Rabah Arezki (World Bank) and Thiemo Fetzer (Warwick). Journal of International Economics, 107, July 2017, Pages 34–59.

• In the media: LSE Business Review Blog, CEP CentrePiece
• Abstract: We study whether and how the technological importance of an input – measured by its cost share – is related to the decision of whether to “make” or “buy” that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed IO tables, we show that French multinationals vertically integrate those inputs that have high cost shares. A stylized incomplete contracting model with both ex ante and ex post inefficiencies explains why: technologically more important inputs are “made” when transaction cost economics type forces (TCE; favoring integration) overpower property rights type forces (PRT; favoring outsourcing). Additional results related to the contracting environment and headquarters intensity consistent with our theoretical framework show that both TCE and PRT type forces are needed to fully explain the empirical patterns in the data.

Managing export complexity: the role of service outsourcing with Giuseppe Berlingieri (ESSEC). Submitted.

• Abstract: Exporting involves sunk and fixed costs in the form of service inputs, and whether such services are made in-house or bought from external agencies is a key organizational margin. We study such outsourcing decisions in a theoretical framework in which firms trade off managerial strain and ex-post adaptation costs. Using data from France and a novel instrumental variable, we document the service inputs needed to access foreign markets and provide empirical evidence that these are typically outsourced. In line with the model, this pattern is strong for services with high adaptation costs and when firms have little managerial capability available.

Managing Global Production: Theory and Evidence from Just-in-Time Supply Chains, CEP Discussion Paper 1689, U St. Gallen Discussion Paper 2020-08 (opens in new tab)

• In the media: VoxEU, CEP CentrePiece Summer 2020, HSG Focus 2021
• Abstract: This paper examines the structure of international Just-in-Time (JIT) supply chains. Using information about JIT supply chain management for a large panel of French manufacturers I first document that JIT is widespread across all industries and accounts for roughly two thirds of aggregate employment and trade. Next, I establish two novel stylized facts about the structure of JIT supply chains: They are more concentrated in space (1) and more vertically integrated both domestically and internationally (2), than their `traditional' counterparts. I rationalize these patterns in a framework of sequential production where failure to coordinate adaptation decisions in the presence of upstream and demand shocks leads to inventory holding. In JIT supply chains, information about downstream demand conditions is shared throughout the supply chain, which facilitates coordination. The associated inventory saving effect is stronger when firms are close to each other, so that the supply chain reacts quickly to changes in demand; and when they are part of the same company, so that incentives for adaptation are aligned. Guided by further predictions of the model, I present empirical evidence that these organizational complementarities depend on inventory holding costs, demand persistence, and the ability to push inventories upstream via contractual penalties. Finally, I discuss long term implications of Brexit and COVID-19 for the structure of international supply chains based on my findings.

Firm Heterogeneity and Imperfect Competition in Global Production Networks (opens in new tab) with Kalina Manova (UCL) and Hanwei Huang (CityU HK)

• Abstract: We study the role of firm heterogeneity and imperfect competition for global production networks and the gains from trade. We develop a quantifiable trade model with (i) two-sided firm heterogeneity, (ii) matching frictions, and (iii) oligopolistic competition upstream. Combining highly disaggregated data on firms' production and trade transactions for China and France, we present empirical evidence in line with the model that cannot be rationalized without features (i)-(iii). Downstream French buyers import higher volumes and quantities at lower prices when upstream Chinese markets become more competitive. These effects are stronger for larger, more productive buyers and weaker when input suppliers are more heterogeneous. Counterfactual analyses indicate that lower barriers to entry upstream, lower matching costs, and lower trade costs amplify firm productivity, firm size dispersion and aggregate welfare downstream. These effects operate through a combination of improved matching of buyers and suppliers, gains from variety, and lower mark-ups. Global production networks thus generate greater impacts and international spillovers from national industrial policy and trade liberalization.

Production Networks, Invoicing Currency, and Shock Transmission with Alessandro Ferrari (University of Zurich), Andreas Freitag (University of Basel), and Sarah Lein (University of Basel)